Creating a marketing budget for a small business is no easy feat. It can be incredibly difficult to determine how much to spend on marketing as a small business, and once you decide how much to spend, it can be even more difficult to split up that amount into separate marketing efforts.
Small businesses are especially vulnerable to going belly-up if they spend too much or too little on marketing without getting enough revenue, especially in the early years. It is important to maintain a healthy revenue-to-costs balance, while continuing to invest resources in order to market and grow your business. So, how much should you spend on marketing?
How Much Should I Spend on Marketing for my Small Business?
There is no clear answer on how much small businesses should spend on marketing. The amount varies depending on each business, their goals, operation costs, marketing plan, target audience, revenue, and product or service.
“As a general rule, small businesses with revenues less than $5 million should allocate 7 to 8 percent of their revenues towards marketing efforts.”, according to the U.S. Small Business Administration.
3 Step Plan to Create a Small Business Marketing Budget
Step One: Know Your Target Audience
Before you begin creating your marketing budget, you should get to know your potential customers. By identifying and understanding your target audience, you will be able to understand which channels will be most effective in reaching your customers. In order to better understand your target audience, ask yourself the following:
- What is my target age group?
- What is my target geographical area?
- What is my target income level?
- What other brands does your target audience use and trust?
This is all information which can be easily accessed with a bit of online industry research, and knowing your target audience and potential customers is a great way to understand how best to guide them through the sales funnel.
Step Two: Splitting Up The Budget
No matter what the general overall budget amount of 7-8% of business revenue looks like for your business, you should split it between the different marketing channels and tactics below. How much you allocate towards each individual item is up to your discretion.
This includes brand development costs, such as:
- Sales Collateral
And, costs of promoting your business, including:
Step Three: Spend The Budget Wisely
While it is critical to know how much you have to spend on marketing, it is even more crucial to have a plan for exactly how you will spend your marketing budget. The marketing budget should be a component of your overall business plan, as it is important to know the costs of your marketing goals and how those factor into your business goals and objectives.
This planning can be achieved by researching what each component of your marketing plan will cost. If you are looking to keep costs down, use no-cost marketing resources as much as you can. Email marketing in low volumes through platforms such as MailChimp and Constant Contact are a good starting point for cost-effective email marketing campaigns.
Another way to keep costs down is to work with fixed-cost services as much as possible. These are much easier to budget for, and will stay the same from month to month. Examples of fixed costs in marketing may include:
- CRM software
- Website hosting fees
- Monthly premium email marketing service subscription
Consult a Financial Advisor
For more tips and guidance when it comes to creating a small business marketing budget or overall budget, consulting with a financial professional can help you determine the most cost-effective ways to grow your business and reach your goals. Contact us today to get started improving your business’ finances.